Kotak, who is the president-designate of the Confederation of Indian Industry, defended the central bank’s move to harden rates by 25 basis points for the first time since the Modi government came to power.Vatsala Gaur | ET Bureau | June 13, 2018, 08:23 IST

New Delhi: Rising oil prices and accelerating growth in vast swathes of the economy created a situation akin to a “tug of war”, prompting the Indian central bank to raise benchmark rates for the first time in more than four years, Asia’s richest banker Uday Kotak said Tuesday.

Kotak, who is the president-designate of the Confederation of Indian Industry (CII), defended the central bank’s move to harden rates by 25 basis points for the first time since the Narendra Modi government came to power. "I can say as a banker that we are seeing very strong micro demand coming back -whether (be they) cars, trucks, two wheelers or farm equipment," Kotak, who is also the chairman of Kotak Mahindra Bank, said Tuesday.

"The steel industry is going through its best period." In contrast, Sunil Bharti Mittal, president of CII, said that increasing the rate at this juncture could lead to higher credit costs to the industry, but a good monsoon season and more efficient supply infrastructure may prompt the central bank to eventually return to a more benign rate cycle.

The most recent figures released by the CSO pegged the GDP growth rate for 2017-18 at 6.7%, with the fourth quarter surging to a seven-quarter high of 7.7%. Mittal also said that with capacity utilisation crossing 80% from 74% earlier, the economy will see more investments, with capital expenditure worth Rs 50,000 crore announced already. In the midst of rising stress in the banking sector, Mittal also said that even though blue chip companies are not facing any trouble getting credit, the MSMEs will need some support from lenders.

"Lending has to be based on sound estimates of what the fundamentals of the company are; if the fundamentals are fine, they are lendable, if not they have to be supported by equity," Kotak told ETon the side lines on whether new entrants are having to bear the brunt of the bad loans problem.

In the context of the recent events taking place at some private sector banks such as ICICI Bank, Kotak said that the banking sector has an obligation to manage other peoples' money responsibly. "It's a business of trust and we need to protect depositors' confidence," he said.